question.jpgIn Business Law

How do taxes apply to a limited liability company?

LLCs are generally subject to the same type of pass-through taxation that applies to partnerships, which means that the company is not, itself, taxed. Instead, any tax burden is passed directly to the members (the LLC owners). The LLC must still file a tax return indicating its earnings and/or losses, but each member pays tax on his or her share of the company earnings (or is entitled to deduct his or her share of the company’s losses).

However, an LLC may elect to use the double taxation method which is applied to most corporations. In this situation, the company pays taxes on its earnings and/or losses, and then the members again pay taxes on their distributions received from the company. LLCs sometimes elect this type of taxation because it provides the company with a financial advantage. You should consult a tax professional for more information in deciding whether double taxation would be advantageous for your LLC.